TOKYO, Sept 7 (Reuters) - The Bank of Japan kept its policy
settings unchanged on Wednesday, saving up its scant ammunition
for later, while the yen stabilised in the wake of Switzerland's
radical action to curb its soaring currency.

But growing uncertainty over the global outlook and the
Swiss move to set a ceiling for its currency against the euro
keeps pressure on the Japanese central bank to take further
action in coming months to prevent a renewed yen spike from
derailing a fragile economic recovery.

Governor Masaaki Shirakawa said the BOJ should be mindful of
heightening global economic uncertainty and the potential harm
the stubbornly strong yen could have on corporate morale,
signalling his readiness to ease policy again to support growth.

But he countered criticism that the BOJ was not doing enough
compared with its U.S. and European counterparts, ahead of his
visit to France for a weekend Group of Seven gathering where the
need for further monetary stimulus may be discussed.

"We eased monetary policy at last month's rate review
because we thought we needed to be mindful of downside risks. We
acted pre-emptively taking into account various uncertainties,"
Shirakawa told a news conference.

"We don't feel that we didn't do anything today. Instead, we
feel that we are proceeding with powerful monetary easing."

As expected, the BOJ kept its policy rate at a range of zero
to 0.1 percent by a unanimous vote and held off on additional
monetary easing steps.

The decision sparked a brief yen rally against the dollar
on disappointment by some market players who had bet the BOJ
would follow Switzerland with measures to counter yen rises.

The central bank maintained its view that Japan's economy
will resume a moderate recovery later this year with growth
picking up on increases in output and exports.

It also stressed that core consumer inflation will remain
near zero for the time being and reassured markets that it will
keep rates virtually at zero until price stability is foreseen.

Switzerland's move on Tuesday to set a ceiling for the
soaring franc's exchange rate raised the possibility that some
of the safe-haven inflows into the Swiss currency could shift to
the yen , driving it again towards record highs.

That would pressure the BOJ to loosen policy further.

The BOJ had already eased policy last month by adding a
further 10 trillion yen ($130 billion) to its pool of funds for
asset buying and fixed-rate market operations. Any future easing
would take the form of further increases in the scheme.

"The BOJ probably opted to wait until they see how this
month's FOMC affects markets and until the new government sets
the tone on what it wants from the BOJ," said Takeshi Minami,
chief economist at Norinchukin Research Institute in Tokyo.

"But the bank could prove to be too late in its action as
the yen is prone to resume rises after the Swiss National Bank's
decision."

The BOJ has plenty of reasons to save up ammunition for
later. The European Central Bank may signal halting its rate
tightening cycle at a meeting on Thursday while the Federal
Reserve is seen adding monetary stimulus on Sept. 20-21, which
could again weaken the dollar.

There is also no guarantee that easing now would stave off
political pressure for more action in October, when debate on
how to pay for post-quake reconstruction starts in earnest under
new premier Yoshihiko Noda.

NO QUICK FIX

Growing fears that the world economy may slip back into
recession are piling pressure on G7 finance chiefs, who gather
in Marseilles on Friday. The discussion is expected to centre on
whether there was wiggle room to ease up on austerity drives in
some rich economies while boosting monetary stimulus.

But with monetary conditions already ultra-loose and its
huge public debt limiting room for fiscal stimulus, Japan is
left with few options to bolster an export-reliant economy
vulnerable to sharp rises in the yen.

Shirakawa said there were limits to what more advanced
nations could do in terms of fiscal and monetary stimulus, and
warned of the drawbacks to keeping ultra-low rates for too long
such as sowing the seeds of another asset bubble.

"Monetary policy may be able to ease the pain from balance
sheet adjustments. But the adjustment from past excesses itself
will not disappear," he said, calling for the need for patient
reforms to fix structural problems plaguing each economy.
($1 = 77.115 Japanese Yen)
(Additional reporting by Rie Ishiguro, Stanley White and Kaori
Kaneko; Writing by Leika Kihara and Tomasz Janowski; Editing by
Kim Coghill)